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Outsourcing: The Russian Revelation

Russian outsourcers can be a good fit for smaller projects that require creativity, interaction and development of intellectual property.

When Daniel Marovitz sought an offshore partner, he scanned the globe. "We talked about Canada, Ireland and low-cost locations in the United Kingdom. But it really came down to India and Russia," said Marovitz, chief technology officer for global banking at Deutsche Banks investment banking unit, in London.

Marovitz soon found the approaches of companies in those two countries could not be more different—and that a Russian outsourcing provider would best satisfy Deutsche Banks needs in maintaining and enhancing its 5,000-user "client-first" CRM (customer relationship management) system for investment bankers.

Want to have applications built in Russia?

As Marovitz learned, the thing to remember is that youre not in India, where you may become accustomed to seeing hundreds of workers assigned to a project that they will dutifully attempt to execute according to instructions, cheerfully saying "yes," even when they have doubts about the methodology or the deadlines.

In Russia, its the opposite: You wont find big companies with big teams willing to say "yes" to your every whim.

Instead, youre likely to find a small team of experts ready to grill you with tough questions. It may be jarring at first, but for certain projects, it can be just what the doctor ordered.

That cultural difference is one of the larger take-aways from the Russoft Associations Russian Outsourcing & Software Summit, a conference in which outsourcing companies from Russia, Belarus and Ukraine met to promote their services here from May 31 to June 2.

"In Russia, the good news is that you have very creative and strong-willed people. And the bad news is that you have very creative and strong-willed people," said Marovitz.

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"In India, people want to say yes to please and to follow instructions. That can create problems sometimes. In Russia, people arent afraid to tell you that you have a silly idea that makes no sense whatsoever. But thats what you need.

"Sometimes you have to stand up and explain why you want something done a certain way. Its easier to have a relationship where the line between employee and vendor gets blurry because people are active members of the team and not just following orders."

However, apparently not all outsourcing customers are used to hearing "nyet." The Russian software outsourcing industry, with about $1 billion in annual sales, is dwarfed by that of India, which boasts $24 billion in annual revenue, according to Forrester Research.

For comparison, IBM on March 6 said its spending in India would be twice as large as the entire Russian market during 2007. Overall, IBM said it will invest $6 billion in India over the next three years. Indians have a nearly limitless skilled labor force, widely speak English and are expert at understanding Western business culture. Those attributes have propelled Indian providers to a steep growth trajectory and global prominence in the past decade.

Russian providers, while they might be a decade behind the Indian companies in maturity, boast some advantages nonetheless.

For example, in the case of Deutsche Bank, the world did not appear as flat as some might believe. The cost of maintaining a relationship between the banks London offices and India loomed much higher than one with Russia in terms of travel, time zone differences and management costs.

Knowing that work on the banks CRM applications would require frequent travel back and forth, Marovitz signed a deal with Russian software outsourcing firm Luxoft to handle maintenance and enhancement of the applications. Beginning with about 24 programmers in December 2002, Luxoft now has about 200 working on the Deutsche Bank applications.

"In India, there is a high infrastructure cost to make things work. Even a small team can cost a lot of money to work with," Marovitz said. "With Russia, its just 3 and one-half hours from London and a 3-hour time change. Its easy to do a two-day trip. For those reasons, it seemed like a good fit for us."

Marovitz said he was also impressed by Luxofts size. "Luxoft was already working with Dell and Boeing and also the U.S. Department of Energy. Theyre much bigger than the other Russian players," he said.

Proximity to Europe also was important to British Telecom Global Services, which signed a deal with software developer Fathom, of Budapest, Hungary, two years ago to upgrade BTGS Web portal for corporate customers. Fathom was acquired last year by Epam Systems, of Lawrenceville, N.J., an outsourcing company with development offices in Russia, Belarus and Hungary.

"They are 3 to 4 hours away. Its easier to communicate between onshore and offshore people. There wasnt a big cultural divide," said Andy Pennington, portal product manager for BTGS, in London.

The creativity and narrow but intense focus of the Russian providers have led some U.S. companies to recruit them for product development. SirsiDynix, a $100 million company specializing in library management systems, discovered StarSoft Development Labs, a $10 million development house with offices in St. Petersburg, Russia, and Cambridge, Mass. SirsiDynix and StarSoft signed a deal that calls for StarSoft to develop SirsiDynixs next-generation, Web-portal-based library management system.

To carry out the work, the companies adopted a team approach involving 25 StarSoft developers in Russia and 25 at SirsiDynix offices in Salt Lake City and Denver. The new system, called Horizon 8.0, was developed in one year. "Its extremely successful, and were very happy with it," said Jack Blount, a SirsiDynix board member based in Provo, Utah, and formerly president and CEO of Dynix, which merged in December with rival Sirsi.

Blount is moving on to start a new company, Alphabay, which is developing retail supply chain systems. He said he plans to employ StarSoft. "StarSoft is an innovator in the space that we need—new products. I needed people to be hired fast and working fast, with no attrition. The Russian companies can staff quickly."